From al-Reuters 31 DEC 2007:
UPDATE 3-Turkmenistan stops gas exports to IranWell, if you haven't read my previous stuff on Iran's Oil Problem and its Oil Outlook, now is the time to, because Iran just hit the wall.
Mon Dec 31, 2007 2:08pm GMT
(Adds Mehr report, analyst comment, paragraphs 2, 5, 12-15)
By Zahra Hosseinian
TEHRAN, Dec 31 (Reuters) - Turkmenistan has stopped natural gas exports to Iran, causing winter shortages in some parts of its neighbour, Iranian officials said on Monday.
The major Central Asia producer blamed technical problems but some Iranian media reports suggested it had halted deliveries because it wanted to raise the price of gas.
Turkmenistan normally supplies 5 percent of Iran's gas consumption with 20-23 million cubic metres per day, the National Iranian Gas Company said.
Turkmen officials were unavailable for comment on Monday. Turkmen media have said an Iranian delegation visited Ashgabat on Dec 26-27 to discuss gas prices for next year.
"In their comments, some (Iranian) officials have said that Turkmenistan has doubled the price of gas," the semi-official Mehr News Agency said, without quoting any of them by name.
Ebadollah Ghanbari, who heads the public relations unit of the national gas company, said Turkmenistan on Saturday slashed exports to Iran by half to 10 million cubic metres, before stopping deliveries completely a day later.
"In an official letter they said it was due to technical problems," he told state broadcaster IRIB. "Since yesterday evening Turkmenistan has completely cut its gas exports to Iran."
Despite its massive gas reserves, Iran has been a net importer of gas since 2002.
The cuts caused difficulties in parts of northern Iran in the middle of winter. Some hospitals were affected, bakeries faced shortages and gas was turned off to some government offices to make more available for households.
"Because of the sharp decrease in the pressure of natural gas many restaurants and motels ... are completely or partially closed," state radio said.
The state gas company urged Iranians to use less energy.
Jonathan Stern of the Oxford Institute for Energy Studies described the timing of the supply disruption as odd and said it might be linked to Turkmen price demands.
"It's very oddly timed, nobody does 'repairs' at this time of year unless there's been some kind of accident which is not mentioned here," Stern told Reuters.
"With Russians paying 30 percent more from tomorrow and 50 percent more from July, I would expect the Iranians to be facing similar demands," he said.
Stern was referring to a price agreement in November between Russia's gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research) and Turkmenistan, which now charges $130 per 1,000 cubic metres.
But Iranian Foreign Ministry spokesman Mohammad Ali Hosseini said Turkmenistan was working to sort things out. "There are a certain number of technical problems and they are trying to solve the problems over there in Turkmenistan," he said.
Iran sits on the world's second largest gas reserves after Russia. But sanctions, politics and construction delays have slowed gas development, and analysts say it is unlikely to become a major exporter for a decade.
(Additional reporting by Marat Gurt in Ashgabat, Barbara Lewis in London, writing by Fredrik Dahl; editing by William Hardy)
Iran subsidizes natural gas so as to keep things running and folks happy. They don't use natural gas to rejuvenate their oil fields, which is one of the cheapest ways to do it. Instead, with non-market prices they get steep use and an increase in that use. If an energy source is cheaper than others, it gets over-utilized, just ask the folks in Iraq who don't pay monthly bills for electricity but get the 'all you can eat with a flat tax' deal from the Government. If there were meters, Iraq's power problem would diminish greatly, but that would also stall out the economic recovery so it will wait. Iran, however, is selling the natural gas at a rate cheaper than re-utilizing it for their oil fields. In theory they should have more than enough to export.
Which brings up the prime question: Why is Iran importing any natural gas?
And why is 5% of their natural gas supplies coming from imports via Turkmenistan?
This was supposed to be a money making export, as they had just finished a pipeline deal with India for natural gas. So *what* are they going to put in that pipeline? Right now the answer is NOTHING.
The folks in Turkmenistan suddenly had a great awakening: they were keeping the Iranian natural gas market afloat and NO ONE ELSE WOULD SELL TO THEM.
If you were in that position, what would *you* do?
Can you say: raise the prices?
And if Iran doesn't play pattycake?
'We have *repairs* so no natural gas for you until we are done.'
In other words: pay up, or else.
Iran, with its refineries in disrepair can't capture enough natural gas to keep its own markets going and hasn't invested much of anything in marginal expansion or new gas field work since 1979. And since folks pay under the market price to help keep the economy going, you can't very well raise the price of it, can you?
So what does Iran do?
'Pretty please, don't use as much.'
Iran can't complain it doesn't have enough natural gas... no that second largest reserve of same on the planet demonstrates just the opposite.
Iran can't complain that the contracts aren't 'fair' as they do *worse* with their oil contracts.
Iran can't raise the price without causing a major recession or depression and starting to shut down some sectors of the economy. Plus, if they raise the prices for natural gas, they will be raising the cost of operating gas fired electrical facilities. A 'double-whammy' on the economy.
Iran might start 'rationing' it, but how they would do that is beyond me. Maybe start closing shut-off valves to certain neighborhoods for half-a-day at a time? That will start to cause some *serious* complaints, not just from college students or government employees, but from everyday folks.
Iran has only one solution that it tends to use for everything, and that is to shift terror operations. So Turkmenistan can expect to get its own little Hezbollah and meet-ups with the Qods forces. Which will be a blessing for Iraq and a 'holding pattern' in Lebanon. Unless, of course, Turkmenistan is *serious* in which case the next year in Iran is make or break.
And if Iran has to *pay up* a lot of terrorist cash will suddenly *dry up*.
Thank you to Turkmenistan!
If you can hold out you just might start solving the problem of Iran in a real hurry.